Providence Pointe residents also paying other side via fees

Oct. 14, 2013

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The five women estimate it has cost $50,000 so far to sue to try to gain control of their condo association, and here’s the kicker: They are also paying the attorney’s fees of their adversary as their case winds its way to Iowa’s Supreme Court.

At stake for the women, all at or nearing retirement, are the condos they bought at Providence Pointe in Johnston, their future ability to sell them, their credit ratings and, for a couple, all of their savings.

“We cannot sell. We cannot refinance. We’re stuck here,” said Becky Rice, the first to call The Des Moines Register Reader’s Watchdog. “It’s like living in a dictatorship in China. And we can’t walk away without ruining our credit and losing all of our equity.”

Today about one in five Americans lives in what’s called a “common interest community.” Nationally, association-run communities numbered about 325,000 last year — nine times the number that existed in 1980, according to the Community Associations Institute, a national trade group.

While the nonprofit associations work well for many, they have also been a source of growing concern for consumer advocates in Iowa and other states. As developers have struggled to back-fill a glutted market, problems with homeowners’ associations have been one of the leading areas of complaints to this column in the past two years.

The Providence Pointe owners reached out because they wonder why state leaders aren’t doing more to protect thousands of Iowa consumers like them. They are among the many who discovered too late they have little or no control to manage their investment under existing state law — and there has been little political momentum to change that.

Rice, and fellow residents Julie Young, Dwyla Mosher, Bobbie Sala and Kim Cosgriff, were among the first 11 buyers at the only condo building completed at Providence Pointe a half-dozen years ago by Providence Pointe LC, a subsidiary of Regency Homes.

But when Regency collapsed in 2008, lender Two Rivers Bank recruited another developer, Haverkamp Properties, to complete the project. Brent Haverkamp’s company bought the undeveloped land and assumed the developer’s rights, including the exclusive right to adjoin his land to the “regime” where the condo owners lived, which had a clubhouse and pool. Haverkamp built a handful of new apartment buildings instead of the owner-occupied condos that had been approved by the city.

His ownership interest in the 141 new apartments gave him control over all votes and decisions made by the homeowners’ association, which had fallen into debt. He installed his employees as officers of the association, rewrote the association’s declaration and increased association fees gradually over time, court documents and meeting minutes show.

In 2011, 14 condo owners filed a lawsuit in Polk County against Haverkamp and his company, the condo association, Two Rivers, Providence Pointe LC and other subsidiaries. They alleged breach of contract and breach of fiduciary duty, saying Haverkamp has failed to turn over control of the association, changed association rules to his own benefit and did not perform maintenance and repairs.

A judge tossed out the breach of contract claims, but said “there are genuine issues of material fact that remain … including what precisely Haverkamp told the plaintiffs regarding his plan for the regime,” court documents show.

The two sides went to binding arbitration and the plaintiffs lost on most counts. Their appeal is expected to be decided in the next six months.

The high court will either decide the remaining legal issues or let the arbitration decision stand. No matter what happens, though, the women are likely to remain in a difficult position.

The women say they were prohibited from speaking at the association’s annual meeting, where fees were raised in part to cover anticipated legal fees tied to the lawsuit. They also say Haverkamp has not disclosed whether he and his investors are paying monthly fees for each apartment into the association.

They also wonder how the mingling of his operating costs and theirs can be legal, given his is a for-profit company and the association is nonprofit.

An expert CPA hired by the original condo owners said Haverkamp Properties was unable to prove $321,141 in expenses billed to the condo association.

The CPA’s assertions were countered by another accountant hired by the plaintiffs who said all but $1,608 in expenses were accounted for, court documents show.

In the meantime, some of the women say they put all of what they have into condos that ranged in cost from $110,000 to $146,000. Yet, they cannot move because would-be buyers cannot get conventional financing.

A year ago, the FHA — the No. 1 lender for low-down payment condo mortgages — released rule changes that eased somewhat who could qualify for condo loans. But buyers who need conventional loans still aren’t able to qualify at Providence Pointe because Haverkamp owns the vast majority of the units as rentals.

The women have appealed to Johnston’s zoning board and city council, the governor, the attorney general and members of Congress. While many have expressed sympathy, no one has stepped up to help, they say.

And yet, they cannot imagine the law or the state would allow a developer to trump all of their rights as property owners.

“Who in their right mind would buy a home knowing the state of Iowa is not going to protect them?” Sala asked.

Jim Nervig, Haverkamp’s attorney, said he empathizes with the condo owners. “But as sorry and appreciative as I am of what these poor ladies have had to go through, they are not alone. … They essentially made a bad investment.”

Nervig said being an early buyer in a new development poses all kinds of risks. One risk is that if a developer goes belly-up, the existing owners can be left with ongoing costs, he said.

“Look at the people who bought into the Ponderosa development in West Des Moines; that was a Ladco Development property,” he said. “That was the biggest bankruptcy in state history.”

Attorney Jon Hoffmann, who represents Rice and the other plaintiffs, said he will not comment on the current legal case. But he’s represented scores of condo owners and is convinced they need more protection under Iowa law.

“When you pay $300,000 for something, you want to feel like you own it,” Hoffmann said.

People who buy into communities assume the original covenants will be in place for a period of time, he said.

“Unfortunately, the way many of the covenants are now written, the builder retains full control until all (or a large portion) of the units are sold,” Hoffmann said.

Hoffmann said minority parties, including lenders, should have a right to weigh in when developers change association rules.

Changes in the use of a planned development also pose problems because rentals are taxed commercially and condos are taxed as residential properties, Hoffmann said.

Hoffmann said anyone interested in a homeowners’ association-run community should get a copy of the bylaws and covenants, and read them closely.

“If you don’t understand them, see a skilled attorney in that area.”

In the meantime, the women insist they and other consumers need greater protection — and they are exploring options, including circulating a petition to bring to state lawmakers.

They have more fighting ahead.

The last time any lawmaker tried to push a bill offering more protection for consumers in homeowners’ associations, condos and co-ops was 2011. But that bill stalled in the House Judiciary Committee, people at the Legislative Services Agency say.

Contact me if you have similar concerns or have ideas on a solution. I will follow up.

Lee Rood’s Reader’s Watchdog column helps Iowans get answers and accountability from public officials, the justice system, businesses and nonprofits. Contact her at lrood@dmreg.com or by calling 515-284-8549. Read past reports at DesMoinesRegister.com/Readers Watchdog.